Australian Lender Offers 40-Year Mortgage Amid Housing Crisis
The initiative aims to ease housing affordability pressures by lowering monthly repayments, though it results in higher total costs over time.
Non-bank lender Pepper Money has announced Australia’s first 40-year mortgage, with terms extending until December 2065.
The start-up is offering the package to ease housing affordability pressure with lower monthly repayments, though it will result in higher total costs over time.
Pepper Money General Manager of Mortgages Barry Saoud said the product addresses the real-life challenges borrowers face.
“We’ve been offering 40-year loan terms for over 20 years to support customers with unique circumstances. Now, we’re extending this option to even more borrowers, making homeownership more affordable by lowering monthly payments to offer budget relief,” he told The Epoch Times.
Flexible Options for Borrowers: Pepper Money
Saoud highlighted the flexibility of the new mortgage.
He added that the extended timeframe of the mortgage gives borrowers control, allowing them to make minimum payments during tight financial periods or pay extra when circumstances improve.
For example, he noted how customers use this flexibility during the holiday season: “With Christmas around the corner, customers can choose to pay the minimum to give themselves extra disposable income to fill those Christmas stockings.”
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However, he cautioned borrowers to consider the long-term implications, including slower equity build-up and higher interest costs.
“Our goal is to help customers to manage and repay their loan responsibly,” Saoud explained.
Most customers, he said, do not see out the full 40-year term, often refinancing as their circumstances improve.
In an aerial view, vacant land sectioned off for housing is seen in the western suburbs of Sydney on Jan. 11, 2024. Jenny Evans/Getty Images
Mortgage Stress and Refinancing Up Amid Forever Housing Boom
Pepper Money’s offering comes amid evolving trends in mortgage stress and refinancing as Australian property values continue a decades long upward trend, highlighted by the Mortgage & Finance Association of Australia’s (MFAA) recent survey.
According to MFAA CEO Anja Pannek, while borrower concerns over repayments have eased slightly, cost of living remains a significant stressor.
“Serviceability continues to be the number one challenge for home loan borrowers looking to refinance,” she said.
The survey showed a decline in the percentage of brokers citing serviceability as a refinancing obstacle, dropping from over 80 percent in early 2024, to 68 percent by August.
Pannek credited rising real wages and July’s Stage 3 tax cuts as contributing factors to improved serviceability.
Impact of Regulatory Pushback
Banks have historically faced regulatory resistance to extending mortgage terms beyond 30 or 35 years.
Pepper Money’s move could signal a shift, with other lenders likely to follow suit to offer greater flexibility in a challenging housing market.
The MFAA survey also noted a decrease in “mortgage prisoners”—clients unable to refinance—falling from over 80 percent in early surveys, to 69 percent in August 2024.
The introduction of a 1 percent serviceability buffer for certain refinances has helped many borrowers secure better deals with other lenders.
“While the cost of a mortgage is still the leading cause of financial stress, as Australians become accustomed to rates at the levels they are today, it is non-negotiable expenses such as childcare and energy bills where families are feeling the pressure,” said Pannek.
